Edelweiss raises $350 million for credit-focused fund
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Mumbai: Edelweiss Global Asset and Wealth Management has raised $350 million for the final close of its second credit-focused fund, Edelweiss Special Opportunities Fund (ESOF) II, said a senior executive of the firm.
“After successfully returning capital to investors in the first credit-focused fund, Edelweiss Special Opportunities Fund, Edelweiss has subsequently raised its second version, ESOF II. As of 31 March 2017, the firm has closed the fund at $350 million,” Nitin Jain, chief executive-global asset and wealth management, Edelweiss, said in an interview.
The fund achieved a first close of $205 million in June 2015.
ESOF II, which invests in privately negotiated collateralized credit transactions, has raised funds from several institutional investors including public pensions and insurance companies. ESOF I had raised $230 million.
Edelweiss’s second credit fund comes at a time when a host of other firms in the alternative investment space are in the market to raise credit-focused funds. These include the likes of Reliance AIF Asset Management Co. Ltd, Avendus Capital and private equity firms Kohlberg Kravis Roberts & Co. Lp and Baring Private Equity Asia.
Credit products in the alternative investment space are seeing a sharp increase as investors hunt for higher yields in a lower interest rate environment, said Jain.
“Increasingly, you are seeing that fixed income yields are becoming low. So, then, there is a hunt for yield. People want a higher yield, but a fixed income nature product. So a lot of interesting, absolute return products are getting traction in the market, which are alternate in nature—they can be credit funds or they can be hedge funds,” said Jain.
People want double-digit returns and low volatility, so a lot of products are being created to deliver yields between 10-14% using credit, he added.
The hunt for higher yields has also made other products such as public sector bank perpetual bonds or AT1 bonds (additional tier 1 bonds) attractive to investors, said Jain.
“Perpetuals have become attractive and the need for higher yield is again driving that trend. Public sector banks are giving you a yield of anywhere between 9% and 10.5%. When you go to fixed deposits, you’re getting only 7-7.5%. While they have a slightly different risk profile, people are getting very comfortable with them,” said Jain.
Led by Jain, the Edelweiss asset and wealth management business today manages assets worth Rs1.2 trillion, with over Rs60,000 crore worth of assets on the domestic wealth management side and the rest coming from the institutional asset management business.
Edelweiss’s wealth management business caters to individuals across three categories—mass affluent, high net-worth individuals (HNI), and ultra HNI and family offices. The asset management business includes funds which invest in credit strategies across asset classes such as real estate, performing credit and distressed credit (including the Edelweiss asset reconstruction business) as well as public market funds.
The firm’s wealth management business, which was set up in 2010, has witnessed a growth of almost 70-80% in the last two years, said Jain.
Edelweiss is targeting a corpus of Rs1 trillion for its wealth management business, which it hopes to achieve in the next two years, he said. “For growing the wealth management business, we are tapping new generation entrepreneurs, family offices and employees in progressive organizations in sectors such as IT services and financial services,” said Jain.
In order to achieve its planned growth, Edelweiss is also investing heavily in technology.“Technology is playing a very important role now. Clients want to access information, flow of information, practically on a real-time basis. Earlier it was acceptable if you told people the health of their portfolio once a quarter. Now, there are clients who want to track it on a minute by minute basis,” he said.
The firm has embarked on a five-year digital transformation drive and has partnered with IT consulting and services firm IBM to help drive the transformation, said Jain.
Edelweiss’s digital transformation drive is focused on increasing the productivity of its advisory team, while helping control costs to improve both the revenue and profit of the business. Edelweiss’s wealth management business employs around 1,300 people.